The U.S. Justice Department, under an agreement yesterday,
won’t prosecute the Frankfurt-based bank for fraud or tax
evasion for enabling wealthy U.S. citizens to avoid $5.9 billion
in taxes, after the bank admitted criminal wrongdoing.

The settlement includes a $149 million civil penalty, the
fees that Deutsche Bank generated from the shelters, and the
taxes and penalties the Internal Revenue Service was unable to
collect from taxpayers because of the misconduct, according to
the agreement.

From 1996 to 2002, “Deutsche Bank assisted high net worth
United States citizens, who, through 2005, reported
approximately $29.3 billion in bogus tax benefits on their tax
returns,” according to the agreement. “DB acknowledges that it
was wrong and unlawful to have engaged in these transactions and
regrets having done so.”

The settlement stems from a U.S. probe into illegal tax
shelters sold by accounting firm KPMG LLP. The U.S. previously
brought criminal charges against former KPMG executives. Charges
against New York-based KPMG, one of the Big Four firms, were
dismissed in January 2007 after the firm paid a $456 million
fine.

HVB Group agreed to pay $29.6 million to avoid prosecution
on charges the Munich-based bank helped KPMG LLP sell shelters.

‘Appropriate Provisions’

As part of yesterday’s settlement, Deutsche Bank agreed to
the appointment of an independent expert to ensure the bank
doesn’t use transactions to defraud the IRS again, according to
the agreement. The overseer’s term will run for at least one
year.

“The bank has previously taken appropriate provisions for
the full amount of the fine, so the payment will not have any
impact on current net income,” the bank said in a statement.
“Deutsche Bank is pleased that this investigation, which
concerned transactions that ceased more than eight years ago,
has come to a resolution.”

Deutsche Bank admitted that it participated in 15 different
shelters, including transactions called “BLPS,” “FLIP” and
“HOMER,” in at least 1,300 deals for over 2,100 customers.

As part of the agreement, Deutsche Bank admitted that it
knew or should have known that its participation in the deals
was meant to create the appearance of legitimate investment
activity, even though their “primary purpose” was to avoid
taxes. The bank also said it knew that documents falsely
describing the transactions would be used by taxpayers and
promoters of the shelters.

Cooperation

Deutsche Bank agreed that it would continue to cooperate
with the government, provide records, and alert prosecutors to
related criminal activity it uncovers. The agreement bans
Deutsche Bank from participating in “pre-packaged tax
products,” which U.S. Attorney Preet Bharara said “were the
type of tax shelters” previously offered by the bank.

Should the bank violate the agreement, the Justice
Department may prosecute the bank or extend the tenure of the
independent expert.

Federal prosecutors in New York have brought criminal cases
against numerous executives since 2005. The government initially
accused 17 ex-KPMG executives, only to see charges against 13 of
them dismissed once a judge ruled that prosecutors violated
their right to counsel. Three were convicted at a trial, one was
acquitted, and others who were later charged pleaded guilty.

The U.S. crackdown on illegal tax shelters also targeted
Jenkens & Gilchrist, a Dallas-based law firm that once had 600
lawyers and which shut down after agreeing to pay millions of
dollars to avoid prosecution for selling phony tax shelters.

Executives at accounting firms BDO Seidman and Ernst &
Young were also convicted of selling illegal shelters to wealthy
clients.